South Korea is set to vote on legislation that would prevent Apple and Google from charging software developers commission on in-app purchases in a potentially damaging move for the tech giants’ revenue streams.

Google and Apple charge commissions of up to 30% on purchases made within their respective app stores, but both companies have increasingly come under fire for the practice.

A South Korean parliamentary committee voted on Wednesday to amend the Telecommunications Business Act, paving the way for a final vote in parliament from a full assembly.

That vote could take place as soon as this week and if passed it will become law with a signature from President Moon Jae-in.

Dubbed the “anti-Google law”, it would be the first piece of legislation in the world to remove restrictions set by Google and Apple on their respective app stores.

App developers are required to use Google and Apple’s proprietary payment systems. It means an app developer cannot direct consumers to a website to make in-app purchases where the tech giants can’t collect commission.

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By GlobalData

If South Korea’s law were to pass it would have significant ramifications for Apple and Google’s app store business models.

Apple’s App Store is a notable revenue stream for the company’s $53.8bn services business, while Google’s Play Store is just as important to the Alphabet-owned company’s $57bn service business.

In South Korea, Google Play Store brought in nearly 6 trillion won ($5.29 billion) in 2019. While South Korea isn’t the largest market for the two tech titans, the law could encourage other countries to follow suit.

In 2020, Google Play Store users downloaded 108.5 billion mobile apps. As of July 2020, there were more than 3.4 billion apps available on Apple’s App Store. The two app stores are the primary platforms for business to sell their mobile apps, making Apple and Google the gatekeepers to a large chunk of the digital economy.

However, Android smartphone owners are able to install software from outside the Play Store, whereas iPhone owners are prevented from installing software that isn’t downloaded via the App Store.

Apple and Google are reportedly seeking support from the US government to push back on South Korea’s legislation. Since 2007 the US and South Korea have had an agreement in place preventing either country from discriminating against companies with headquarters in the other.

“We are engaging a range of stakeholders to gather facts as legislation is considered in Korea, recognising the need to distinguish between discrimination against American companies and promoting competition,” US Trade Representative spokesman Adam Hodge said in a statement to the New York Times.

It comes as the Biden administration is clamping down on powerful technology companies, as demonstrated by the appointment of Big Tech critic Lina Khan as chair of the Federal Trade Commission.

South Korea may pave way for global action against Apple and Google

The focus on app store practices comes amid a wider regulatory crackdown on tech giants. A recent GlobalData report notes that regulators around the world are targeting Big Tech firms on issues such as antitrust, data privacy, online harm, tax avoidance and misinformation.

In preliminary findings for its antitrust probe, the European Commission accused Apple of choking competition by making developers agree to what it called unfair rules.

The EU’s proposed Digital Markets Act also has Google and Apple’s app stores in its crosshairs.

In March, the UK’s Competition and Markets Authority launched an antitrust probe into Apple’s App Store terms to establish whether they break competition laws.

And earlier this month US lawmakers introduced a bill that would prohibit app store providers from forcing developers from using their own payment solutions.

Apple and Google have in the past responded to criticism by lowering the commissions they charge to some developers.

In November 2020, Apple offered an olive branch to smaller software developers by halving the commission fees it charges, while Google made a similar move.

Verdict has contacted Apple and Google for comment. Previously the two companies have pointed to the size of the marketplace they provide developers, with Apple insisting the App Store is a “powerful engine of economic growth”.

But developers remain unhappy with the terms and some companies have taken the tech giants to court.

Apple is currently being sued by music streaming service Spotify. Epic Games, maker of hit game ‘Fortnite’, is suing Apple and Google.